Sudanese banks to settle remittances at free market price

CAIRO: Sudan’s central bank has asked commercial banks to begin preparations to use the free market rate to convert remittances into Sudanese pounds in the coming weeks, the latest move in a push to reform the exchange rate, two banking sources told Reuters.

The request was made in a directive circulated to banks in January instructing them to facilitate the move by opening outlets abroad, particularly in the Gulf where Sudanese expats are concentrated, and by establishing correspondent relations with foreign banks.

However, that process make take time as Sudanese banks have only recently been allowed to re-establish such relations following Sudan’s removal late last year from a US list of state sponsors of terror after three decades.

Sudan promised the IMF last year it would liberalise its currency and phase out costly fuel subsidies as part of a staff monitored programme designed to lead eventually to debt relief and additional financing.

The government is trying to extract itself from a vicious cycle where it prints Sudanese pounds to finance a budget deficit exacerbated by hefty payments for its fuel subsidy programme.

The expansion in the money supply has in turn debased the currency and led to one of the world’s highest rates of inflation. One dollar, officially worth 55 pounds, fetched 340 pounds on the black market on Monday, while inflation rose to 254% in December. In the circular seen by Reuters, the central bank directed banks to use dollars bought abroad to finance the import of strategic commodities. It likewise asked currency exchange houses to sell dollars bought within Sudan to individuals traveling on the same day or to banks.